So if investors are the most pessimistic since the GFC more than a decade ago according to the latest Bank America/Merrill Lynch survey of global fund managers, why are some key stockmarkets close to all-time highs?
For example, the ASX closed at a new 11 year high on Tuesday, the Dow, S&P 500 and Nasdaq are close to or at time peaks.
The Dow, in fact, is looking at its best June gain of nearly 7% since 1938 (as the US was struggling out of The Great Depression). The S&P is on track to a gain of 6% and Nasdaq is looking at a 6.8% gain.
The ASX 200 is facing a larger gain (so far) of around 9%!
So why the gloom?
According to the Bank of America Merrill Lynch, survey equity allocations saw the second-biggest drop on record in May (May was a negative month), while cash holdings jumped by the most since the 2011 debt-ceiling crisis to a record 5.6% compared with the survey in the average of 4.6% over time.
The survey shows global growth expectations collapsed in May and early June (The survey was carried out last week), Bank of America said, with half of the surveyed fund managers forecasting weakness over the next 12 months, in conditions “consistent with 2000/01 and 2008/09 recession levels.”
Trade-war concerns continue to rise with 56% of surveyed investors saying it’s their top tail risk.
The surge in cash levels set off the strategists’ contrarian buy signal for stocks, even as the poll showed relative exposure to equities over bonds narrowed to the tightest level since May 2009.
“Fund manager survey allocation is implying recessionary conditions,” Bank of America strategists led by Michael Hartnett said in a note.
“Investors are overweight assets that outperform when interest rates & earnings fall and underweight those positively correlated to rising growth and inflation.”
And when investors are gloomy they rotate out into cash and government bonds (its why bond prices have rallied strongly, making fools once again of all those who forecast the end to the long boom when yields rose last year) as well as defensive stocks.
The survey conducted between June 7 and 13 showed a rotation into fixed income, cash, utilities and staples and away from banking, tech and euro-area shares.
The fund managers said they expect the Fed to cut rates if the S&P 500 falls to 2,430 and expect President Donald Trump to seek a comprehensive trade deal if the benchmark drops to 2,350. Seeing the S&P 500 closed above 2,900 on Tuesday, there would have to be a pretty big crash for either of those two events to happen.